Dave Pollard's chronicle of civilization's collapse, creative works and essays on our culture.
A trail of crumbs, runes and exclamations along my path in search of a better way to live and make a living, and a better understanding of how the world really works.

October 5, 2005

Open Source Business, Part Two

Filed under: Working Smarter — Dave Pollard @ 16:57
NatEnterpriseIn Part One, I defined Open Source Business (OSB) as:

A radically transparent organization which (a) operates through open collaborative partnerships with customers, employees, suppliers, and the communities in which it does business, (b) shares its sources of information, designs, specifications and processes with them, and (c) allows open participation in and makes public all decisions it makes, all operating information, and all documents it produces, on a creative commons basis.

To remain competitive, at least as long as the ‘market’ economy remains in place, an OSB must be small enough to stay below the interest radar of potential larger competitors, or choose to operate on a zero- or small-profit basis, so that larger enterprises will be unwilling to match its price. So OSB is best suited to those who are looking for something other than big money in the way they make a living. That’s not to say an OSB cannot be very profitable. Profit, however, is not the intention of the business, and, because growth is not the intention of an OSB either, any surplus would normally be returned to the community and the customers. Not-for-profit businesses are not volunteer organizations. Its members earn a market-rate salary, but not more.

Businesses that are not-for-profit and which have no ambitions for growth are not of much interest to banks or investors, but may well be of interest to credit unions or fraternal financial institutions, which also operate on a not-for-profit basis (though generally they do aspire to growth).

Take a look through the standard industrial classification of businesses and other organizations — Agriculture, Forestry, Fishing, Mining, Oil & Gas, Construction, Manufacturing, Transportation, Media, Utilities, Wholesale & Retail, Financial, Hospitality, Recreation, Real Estate, Business, Repair & Professional Services, Education, Health, Government & Public Services — and you’ll have a hard time coming up with any business that doesn’t lend itself to operating as an OSB. The toughest are probably mineral exploration and pharmaceuticals, industries with a huge investment required and a substantial risk of having nothing to show for it. Just about any other type of organization, it seems to me (including government, transportation, health and education), could just as easily be community based, small, and not-for-profit, with what Jon Husband calls ‘wirearchy’ coordinating their actions with similar organizations in other communities. Size and hierarchy are unnecessary.

Industries like mineral exploration and pharmaceuticals could manage that risk the same way all other large risks are managed — by pooling their collective risks against failure, making the search a networked ‘joint venture’. The result for those in the risky businesses is the elimination of both profit and loss. For example, suppose there were 50 tiny pharma companies looking for an antiviral for Poultry Flu. All but one of the 50 invests $1M and comes up empty. One invests $1M and comes up with the answer. The drug is valued at $50M. All the small community governments (say a million of them) in the world split that cost by paying $50 each for an unlimited amount of the drug (cost of manufacture of the drug itself is usually negligible) and offer their members the drug for nothing — the $50 is part of the community’s health care budget. The $50M goes equally to the 50 pharma companies, eliminating their loss by covering all their costs. Nobody makes a profit, but no one suffers a loss, either. The people in the pharma companies get their standard ‘salary’ costs paid for, and the satisfaction of knowing they participated in finding a cure for a horrific disease.

In the comments and e-mails to Part One, readers asked three great questions: (1) How would an OSB be run, and wasn’t there a risk if it had no hierarchy, no one ‘in charge’ and responsible, that it could become anarchic and collapse? (2) Would we need to change our culture from today’s ‘enlightened self-interest’ (i.e. selfish) culture to an altrustic one before OSB could work? and (3) How would an OSB be organized and how does that differ from what I have called a Natural Enterprise? Taking them one at a time:

(1) There is lots of evidence that self-managed systems work, and work better than hierarchically-managed systems. But making them work is a learning experience, no different from any other. At first, OSB’s will have to draw on useful instructions from the commons on how self-managed enterprises can operate with a minimum of discord. Some will of course fail. But if there is a collective will from the members to make it work, it will generally find its legs in time. If you look at entrepreneurial businesses, there are probably more that continue in spite of having no self-management skills, by sheer will power, than there are entrepreneurial businesses that fail despite having good self-management skills. And in time, the new OSB educational organizations that emerge will teach the rest of us how to self-manage.

(2) I don’t believe people change, and since a culture is the collective beliefs and behaviours of its people, we cannot expect culture to change. I have worked with hundreds of (mostly small) business owners over the years, and while they wouldn’t complain about making scads of money, that’s not why they’re working. The joy comes from the sense of self-satisfaction, accomplishment, and pride that making a living with people you love brings. I’ve met quite a few open-source developers and participants since I started this blog, and they’re doing what they’re doing because they love doing it, not for altruistic reasons. There was a survey a few years ago that showed that most people who said they loved their work would keep doing it even if their salary was halved, while most people who hated their job would quit even if they didn’t get an expected raise. So I don’t think we need to change culture. But them I believe most people are inherently good, and want to do things that make life better for everyone.

(3) I think there are two significant differences between an OSB and a Natural Enterprise. The first is that a Natural Enterprise need not be transparent. An OSB must, by definition. The second is that a Natural Enterprise (a) is financed organically, rather than by investors or bankers, (b) is made up of intimates, people you love, not just acquaintances who share a common purpose, and (c) uses a disciplined up-front process to virtually eliminate business risk, before starting up. What they both have in common, most importantly, is the sense of responsibility they both accept that goes far beyond ‘shareholder expectations’, that handy excuse for amoral, destructive, unsustainable and irresponsible behaviour that personifies the behaviour of so many of today’s corporations.

In Part Three (maybe next week), the mechanics of creating an OSB, or transforming an existing organization into one.

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